Presentation to:
CDIAC Introduction to Bond Math
September 20, 2007
Peter Taylor, Managing Director, Public Finance Department Robert Hillman, Senior Vice President, Public Finance Department
Agenda Agenda
I.
What is a Bond?
II.
Key Concepts of Municipal Bonds
III.
Yield Curve
IV.
Fixed vs. Variable Rate Debt
V.
Amortization Structures
VI.
Key Calculations from a Bond Sale
VII.
Question and Answer
Appendix – Sample financing schedules
What is a Bond?
What is a Bond? What is a Bond?
– A bond is a debt instrument that allows issuers to finance capital needs. needs. It obligates the issuer to pay to the bondholder the principal plus interest. • A buyer of the bond is the lender or investor. • A seller of the bond is the borrower or issuer. – When an investor purchases a bond, he is lending money to a government, municipality, corporation, federal agency or other entity. – In return for buying the bond, the issuer promises to pay the investor a specified rate of interest during the life of the bond and to repay the face value of the bond (the principal) when it “matures,” or comes due. – In addition to operating covenants, the loan documents require issuer to spend the bond proceeds for the slated projects. – Among the types of bonds an investor can choose from are: U.S. government securities, municipal bonds, corporate bonds, mortgage and asset-backed securities, federal agency securities and foreign government bonds, among others. – A bond can also be thought of as a contract between the issuer issuer and investor. This contract specifies, for example, the terms of the bonds, the funds from which debt service will be paid and any operating covenants.
1
Source of Repayment for Debt Service What is a Bond?
General Obligation (“GO”) Bonds – Secured by a pledge of the issuer’s full faith, credit and taxing power. The “full faith and credit” backing of a General Obligation bond implies that all sources of revenue, unless specifically excluded, will be used to pay debt service on the bonds. Appropriation Bonds – Bonds are secured by a “promise to pay” with legislative approved appropriations. These are generally generally supported by the General Fund of issuer, unlike General Obligation bonds where funds are often not paid from the General Fund. – Examples would include Certificate of Participation (COPs) and Leased Revenue Bonds (LRBs).
Revenue Bonds – Revenue bonds are payable from a specific stream of revenues, such as a user fee or dedicated tax, and are not backed by the full faith and credit of the issuer. They are issued to finance specific enterprises or projects and are usually secured solely by revenues from those projects. Revenue bonds can generally be grouped into the following categories: – Utilities – Higher Education, Healthcare and Other Not-For-Profit – Housing – Transportation – Industrial Development, Pollution Control, and Other Exempt Facility Bonds – Securitized Revenue Bonds 2
Bond Covenants and Other Security Features of Revenue Bonds What is a Bond?
Rate Covenants - Under a rate covenant, the issuer pledges that rates will be set at a level sufficient to meet operation and maintenance expenses, renewal and replacement expenses, and debt service. An alternative form of rate covenant requires that rates be set so as to provide a safety margin above debt service, after operation and maintenance expenses are met. Example: “The Board will fix, charge and collect fees so that the Revenues will at all times be sufficient in each Fiscal Year to pay Operating and Maintenance Expenses and to provide funds at least equal to 115% of (1.15 times) the Principal and Interest Requirements….”
Additional Bonds Test (ABT) - Protects existing bondholders from the risk that their security will be diluted by the issuance of additional additional debt. The Additional Bonds Test must be met by the issuer in order to borrow additional debt secured by the same revenue source as the outstanding bonds. Example: “The Net Revenues in each of the two Fiscal Years immediately preceding the date of issuance of such proposed Additional Bonds must be equal to at least 130% of the estimated Annual Debt Service for the year following the proposed pro posed issuance.”
3
Bond Covenants and Other Security Features of Revenue Bonds (cont.) What is a Bond?
Debt Service Reserve Fund - Provides a cushion to make timely debt service payments in the event of temporary adversity. Federal law limits the amount of tax-exempt tax-exempt bond proceeds that can be used to fund the debt service reserve fund to the lesser of: 10% of the principal amount of the issue; Maximum annual debt service; and 125% of average annual debt service on an issue.
I.
May also be required for appropriation debt.
II.
Many times a DSRF is not required for highly rated credits (e.g. UC Regents and CSU).
Other Covenants - Additional covenants might include a provision for insuring the project, a review by an independent auditor, or a prohibition against the sale of the project’s facilities prior to repayment of outstanding debt, among others.
4
Uses of Bond Proceeds What is a Bond?
New Money
Bonds issued to provide new or additional funding for a project.
Refunding
Bonds issued to refinance certain existing bonds (proceeds used to to repay old bonds). bonds). Refundings can be used to produce savings, restructure debt service or release the issuer from restrictive operating covenants.
5
Key Concepts of Municipal Bonds
Key Concepts – Basic Terminology Key Concepts of Municipal Bonds
Principal
Debt Service
Maturity
Original Issue Discount
Serial Bonds
Original Issue Premium
Term Bonds and Sinking Funds
Bond Proceeds
Coupon
Capital Appreciation Bonds
Yield
Callable Bonds
Price
Insurance
Interest
Bond Conventions
6
Principal and Maturity Key Concepts of Municipal Bonds
– Maturity: • Date on which principal payments are due • Typically, maturity dates are generally no longer than 30 years • Most bond issues have principal maturing each year until the final maturity date of the series – Principal: • Also known par amount, or face value, of a bond to be paid back on the maturity date • Typically, bonds are sold in $5,000 principal denominations, often $100,000 for variable rate bonds
Maturity Date
Principal
01/01/10 01/01/11 01/01/12 01/01/13 01/01/14 01/01/15 Total
$8,705,000 9,005,000 9,325,000 9,685,000 10,170,000 10,705,000 $57,595,000 7
Serial and Term Bonds Key Concepts of Municipal Bonds
Bonds can either mature annually (serial bonds) or as term bonds. A term bond is a series of sequential amortizations. Payments of princip al prior to the term bond’s final maturity are referred to as sinking fund payments.
Year
Principal
Coupon
2010
$8,705,000
3.50%
2011
9,005,000
3.50% Serial Maturities
2012
9,325,000
3.90%
2013
9,685,000
5.00%
2014
10,170,000*
5.25% Term Bond
2015
10,705,000 $57,595,000
*Sinking fund payment 8
5.25%
Coupon, Interest and Debt Service Key Concepts of Municipal Bonds
Coupon
– Percentage rate (based on principal/par amount) of annual interest paid on outstanding bonds – Can be fixed or variable
Interest – Cost of borrowing money for the issuer – Usually paid periodically - Semi-annually for fixed-rate bond - More frequently than semi-annually for variable-rate bonds – Interest is calculated by multiplying principal by coupon (adjusted for length of period between interest payments)
Debt Service – Sum of all principal and interest on a bond.
Year 2009 2010 2011 2012 2013 2014 2015
Principal
Coupon
$8,705,000 9,005,000 9,325,000 9,685,000 10,170,000 10,705,000 $57,595,000
3.50% 3.50% 3.90% 5.00% 5.25% 5.25%
9
Interest $2,563,713 2,563,713 2,259,038 1,943,863 1,580,188 1,095,938 562,013 $12,568,463
Debt Service $2,563,713 11,268,713 11,264,038 11,268,863 11,265,188 11,265,938 11,267,013 $70,163,463
Bond Pricing Key Concepts of Municipal Bonds
Price – discounted present value of debt service on an individual individual maturity. Debt service is calculated calculated using the coupon and discounted at the yield.
Principal
Coupon
Interest
Debt Service
Present Value to 1/1/08 at 3.82% 3.82%
1/1/2008 7/1/2008 1/1/2009 7/1/2009 1/1/2010
$100.00
Total
$100.00
3.50%
1.75 1.75 1.75 1.75
1.75 1.75 1.75 101.75
1.717 1.685 1.653 94.334
7.00
107.00
99.389
Price 99.389 Par amount $8,705,000 Purchase Price $8,651,812 10
Bond Pricing (cont.) Key Concepts of Municipal Bonds
As a result, price and yield move in opposite directions.
Yield
Price
Coupon
11
Par, Discount and Premium Bonds Key Concepts of Municipal Bonds
Yield
Par Bonds
Price
– Coupon equals yield – Purchase price equals principal amount
Coupon
Yield
Discount Bonds – Coupon less than yield
Price
– Purchase price less than principal amount
Coupon Premium Bonds
Price
– Coupon greater than yield
Yield
– Purchase price greater than principal amount
Coupon 12
Par, Discount and Premium Bonds (cont.) Key Concepts of Municipal Bonds
Year
Principal
Coupon
Yield
Price
2010
$8,705,000
3.50%
3.82%
99.389
2011
9,005,000
3.50%
3.85%
99.017
2012
9,325,000
3.90%
3.90%
100.000
2013
9,685,000
5.00%
3.94%
104.768
Discount Bonds Par Bond Premium Bonds
2015
20,875,000
5.25%
4.02%
$57,595,000
13
107.440
Original Issue Discount and Original Issue Premium Key Concepts of Municipal Bonds
Original Issue Premium
Original Issue Discount
Proceeds
Year
Principal
Price
2010
$8,705,000
99.389
($53,188)
$8,651,812
2011
9,005,000
99.017
(88,519)
8,916,481
2012
9,325,000
100.000
2013
9,685,000
104.768
$461,781
10,146,781
2015
20,875,000
107.440
1,553,100
22,428,100
$57,595,000
9,325,000
$2,014,881
14
($141,707)
$59,468,174
Capital Appreciation Bonds (CABs) Key Concepts of Municipal Bonds
CABs pay no periodic interest interest until maturity. The bonds accrete in value as interest interest accrues. – Usually sold as serial bonds, but can be structured as term bonds. At maturity an amount equal to the initial principal invested plus the interest earned, compounded semiannually at the stated yield, is paid. They are sold in denominations of less than $5000 representing their present value and pay $5000 at maturity. Though CABs are often more expensive (sold at a higher yield) than current interest bonds, they are used to achieve particular debt service patterns. Example: A CAB maturing in 2010 may have a par amount of $90,595 but will have have a value of $100,000 when it matures. The difference between $100,000 and $90,595 represents the interest on the bond.
Accreted Value of CAB from Delivery to Maturity 102,000 100,000
e u l a 98,000 V d 96,000 e t e r c 94,000 c A
92,000 90,000 1/1/08
7/1/08
1/1/09 Year
Accreted Value
15
7/1/09
1/1/10
Callable Bonds Key Concepts of Municipal Bonds
Callable Bonds: bonds that can be redeemed by an issuer before their actual maturity on and after a specified call date (an optional redemption provision). Many times, fixed-rate bonds will be callable 10 years after issuance at a price of par. Historically, many municipal bonds were sold with 10-year call features where the bond was callable at 102 and declined to par by the 12th year. Municipal bonds are sold with embedded call features to provide restructuring flexibility and/or refinancing savings in the future. Investors charge the issuers for this flexibility – through a higher yield and lower price – thereby increasing the cost of the financing at the time of issuance. – Issuers need to weigh this increased flexibility and the possibility of savings down the road against this increased cost.
16
Bond Insurance Key Concepts of Municipal Bonds
Issuers purchase bond insurance in order that debt service will be paid even if there are insufficient revenues. – In exchange for this, investors will pay a higher price (lower yield) for an insured bond. Premium paid upfront, based on original debt service schedule; no credits for refundings or early repayment of bonds. Payments by insurer are a “loan” or an “advance” that have to be paid back – Not like property or health insurance – A form of “credit enhancement” The cost of an insurance policy needs to be compared to the observed market spread between insured and uninsured bonds. It makes sense to only insure those maturities for which the cost of the policy is less than 'cost' of issuing uninsured bonds.
17
Bond Conventions Key Concepts of Municipal Bonds
Basis Point – Yields on bonds are usually quoted in terms of basis points, with one basis point equal to one onehundredth of 1 percent. • .50% = 50 basis points Day Count – 30/360 • Usually for tax-exempt fixed rate bonds – Actual/Actual • Usually for tax-exempt variable rate bonds Pricing – Truncate to 3 decimals
18
Yield Curve
Yield Curve: Normal Yield Curve
6.00 5.50 5.00 4.50
) % ( d 4.00 l e i Y
3.50 3.00 2.50 2.00 2006
2011
2016
2021 Maturity Maturity (Yrs )
19
2026
2031
Yield Curves: Flat and Inverted Yield Curve
6.00 5.50 5.00
) 4.50 % ( d l 4.00 e i Y3.50
3.00 2.50 2.00 1
6
11
16
21
Maturity (Yrs)
Flat
20
Inverted
26
Today’s Yield Curve Compared to the Yield Curve from One and Two Years Ago Yield Curve
5.00 4.50
) 4.00 % ( 3.50 d l e i Y3.00 2.50 2.00 1
3
5
7
9
11
13
15
17
19
21
23
25
Matu ri ty (Yrs) 8/15/2005
8/15/2006
21
8/15/2007
27
29
Recent Market Movements Yield Curve
Recent Municipal Yield Curve Movements 4.75 4.50 ) 4.25 %4.00 ( d l 3.75 e i Y3.50 3.25 3.00 1
3
5
7
9
11
13
15
17
19
21
23
25
27
29
Maturi ty (Yrs) 8/15/2007 9/17/2007
10-Year Municipal Yields Compared to 10-Year Treasury Yields 5.00 4.75
) 4.50 % ( d 4.25 l e i 4.00 Y
Treasury vs. MMD Spreads 8/1/07 78 bps 8/28/07 46 bps 9/17/07 73 bps
3.75 3.50 8/1/2007 8/1/2007
8/15/2007 8/15/2007
8/29/2007 8/29/2007
Maturi ty (Yrs)
10-year T reasu reasury
10-year MMD 21a
9/12/2007 9/12/2007
Fixed vs. Variable Rate Debt
Fixed and Variable Rate Debt Issuance Fixed vs. Variable Rate Debt
Total Municipal Debt ($Billions Par Amount Issued) $500 $453 $431
$407
$400 $365
$390
$358
$342 $314
$300
$290
$273 $259
$216 88%
$200
85%
$209
$226 $195
$100
85%
90%
79% $234
89%
$162 90%
$255
86%
85%
79% 73%
82% 86%
84%
76% 76%
80%
77%
$0 1990
1991
1992
1993
1994
1995
1996
1997
1998
Fixed Rate
1999
2000
2001
Variable Rate
Source: Thompson Financial.
22
2002
2003
2004
2005
2006
2007 YTD
Fixed vs. Floating-Rate Bonds Fixed vs. Variable Rate Debt
Fixed Rate Bonds Advantages
Disadvantages
No Interest Interest Rate Risk - Budget Budget Certainty Certainty
Higher Initial and Expected Interest Expense
No Ongoing Credit Support Needed
Less Flexible Call Feature than Floating Rate Bonds
Traditional Investors Include: Include: Bond Funds, Funds, Insurance Companies, Arbitrage Accounts, Trust Departments and Retail Investors
Potentially Higher Issuance Costs
Fixed rate financings remain the most common approach in the current market.
Variable Rate Bonds Disadvantages
Advantages
Interest Rate Risk Budgeting Uncertainty Unpredictable Pricing of Support Costs Additional Administrative Involvement
Easy to Restructure Lower Expected Cost of Capital Used to Diversify Debt Portfolio Traditional Investors Include: Include: Money Market Market Funds, Corporations and Retail Investors
Given the Fed’s recent rate increases, variable rates have increased from fr om their historical lows two years ago, with BMA recently resetting at 3.61%. This compares to a 20-year average of 3.20%. 23
Variable Rate Demand Bonds vs. Dutch Auction Securities Fixed vs. Variable Rate Debt
Variable Rate Demand Bonds (VRDBs)
Dutch Auction Securities (SAVRS)
Bear interest at a variable (floating) ( floating) rate that resets daily, weekly, monthly, quarterly, or any integral multiple of three months.
Bear interest at a variable (floating) rate set through a dutch auction process held every 35 or 7 days (or any multiple thereof).
Investors have right to tender or “put” the bonds back to the Issuer at par
No put option for investors
Requires liquidity support (external or self-liquidity)
No need for liquidity facility
Carry both long- and short-term short-term credit ratings
Carry only long term credit rating
Generally use combination of insurance and Standby Bond Purchase Agreement (SBPA) or a Letter of Credit (LOC).
Generally carry insurance
Most common form of variable rate financings
Typically trade 10-15 basis points over VRDBs
24
Credit Enhancement for VRDBs Fixed vs. Variable Rate Debt
Credit enhancement is a means of substituting the credit of the issuer with that of a higher rated third party guarantor. –
Similar to insurance in the case of fixed rate bond, credit enhancement improves the marketing for bonds.
–
Credit enhancement typically takes the form of bond insurance or letters of credit (LOC).
Bond Insurance
Letters of Credit (LOC)
Several well-established bond insurers.
Typically provided by commercial banks.
Premium is based on projected total debt service and paid up-front as a one time fee.
Premium is based on amount of debt outstanding and paid over time.
In effect for life of bond issue.
Most LOCs carry an initial term shorter than the term of the bonds and must be renewed or replaced at each expiration date.
25
Amortization Structures
Alternate Amortization Structures Amortization Structures
Issuers can use amortization structures to shape their overall debt structure pattern. Level Principal Year 2009 2010 2011 2012 2013 2014 2015
Principal $9,620,000 9,620,000 9,620,000 9,615,000 9,615,000 9,615,000 $57,705,000
Interest 2,538,905 2,538,905 2,202,205 1,865,505 1,490,325 1,009,575 504,788 $12,150,208
Level Debt Service Total 2,538,905 12,158,905 11,822,205 11,485,505 11,105,325 10,624,575 10,119,788 $69,855,208
26
Principal $8,705,000 9,005,000 9,325,000 9,685,000 10,170,000 10,705,000 $57,595,000
Interest 2,563,713 2,563,713 2,259,038 1,943,863 1,580,188 1,095,938 562,013 $12,568,463
Total 2,563,713 11,268,713 11,264,038 11,268,863 11,265,188 11,265,938 11,267,013 $70,163,463
Impact of Issuing Multiple Stand-Alone Level Debt Service Issues Over Time Amortization Structures
Multiple Stand-Alone Level Debt Service Structures
e c i v r e S t b e D
1995
1998
2001
2004
2007
2010
2013
2016
2019
2022
2025
2028
Year Year Year Series 1995 Debt Service
s
0
Series 20001990 DebtDebt Service t Series Service s
27
5
Series t 2005 Debt Service
Principal Amortization Options Amortization Structures
Wrapped Debt Service Structure
Accelerated/Front-Loaded Debt Service Structure
e c i v r e S t b e D
2005
e c i v r e S t b e D
2010
2015
2020
2025
2030
2035
2040
2005
2010
2015
2020
Year Existing Debt Service Service
2030
2035
2040
Year
New Mo ney Debt Debt Service Service
Exi Exis ting Debt Service Service
New Mo ney Debt Service Service
Increasing Debt Service Structure
Deferred/Back-Loaded Debt Service Structure e c i v r e S t b e D
2005
2025
e c i v r e S t b e D
2010
2015
2020
2025
2030
2035
2005
2040
2015
2020
2025 Year
Year
Existing Debt Service Service
2010
New Money Debt Service Service
New Mo ney Debt Debt Service Service
28
2030
2035
2040
Key Calculations from a Bond Sale
Key Calculations From a Bond Sale Key Calculations from a Bond Sale
Sources and Uses of Funds Issuance Expenses Net Debt Service Schedule Yield Calculations
29
Sources and Uses of Funds Key Calculations from a Bond Sale
Sources: Bond Proceeds Par Amount Net Premium Total Sources
$57,595,000 1,873,174 $59,468,174
Uses: Project Fund Deposit Other Fund Deposits Debt Service Reserve Fund Capitalized Interest Account Delivery Date Expenses Costs of Issuance Underwriter's Discount Bond Insurance Other Uses of Funds Additional Proceeds Total Uses 30
$50,000,000 5,946,817 2,489,242 500,000 387,975 140,327 3,813 $59,468,174
Issuance Expenses Key Calculations from a Bond Sale
Components of Underwriters’ Discount
Borrower’s Cost of Issuance Rating Agency Fees
Takedown Management Fee
Issuer/ Authority Fee
Underwriters’ Counsel DTC
Bond Counsel Fee
CUSIP BMA Assessment
Borrower’s Counsel Fee
Dalcomp Electronic Order Entry
Trustee Fees
Dalcomp Wire Charge Cal PSA
Auditor's Fee
CDIAC Printing and Mailing Costs
Day Loan Out-of-Pocket and Closing Costs
Miscellaneous and Contingency
Verification Agent (if refunding)
31
Net Debt Service Schedule Key Calculations from a Bond Sale
Period Ending
Principal
Coupon
01/01/09
Interest
Gross Debt Service
Capitalized Interest Fund
2,563,713
2,563,713
2,563,713
Net Debt Service
01/01/10
$8,705,000
3.500%
2,563,713
11,268,713
$11,268,713
01/01/11
9,005,000
3.500%
2,259,038
11,264,038
11,264,038
01/01/12
9,325,000
3.900%
1,943,863
11,268,863
11,268,863
01/01/13
9,685,000
5.000%
1,580,188
11,265,188
11,265,188
01/01/14
10,170,000
5.250%
1,095,938
11,265,938
11,265,938
01/01/15
10,705,000
5.250%
562,013
11,267,013
11,267,013
$12,568,463
$70,163,463
$57,595,000
32
$2,563,713
$67,599,750
Yield Calculations Key Calculations from a Bond Sale
Yield is the discount rate at which the present value of future debt service payments are equal to the
proceeds of the issue. The most common measures of the borrowing cost of a bond issue are the arbitrage yield, true interest cost (TIC) and all-in TIC. For short or non-callable issues, each is differentiated differentiated by which costs it takes account account of. For example… Arbitrage Yield
TIC
All-In TIC
Par Value + Premium (Discount) - Credit Enhancement/Insurance - Underwriter's Discount - Cost of Issuance Expense
$57,595,000 1,873,174 -140,327
$57,595,000 1,873,174 -140,327 -387,975
$57,595,000 1,873,174 -140,327 -387,975 -500,000
Net Proceeds
$59,327,847
$58,939,872
$58,439,872
33
Yield Calculations for a Bond Issue Key Calculations from a Bond Sale
In this example, the debt service used to calculate the Arbitrage Yield, TIC and All-In TIC are the same. The difference difference between them is the 'target' value.
Discount Rate*
Arbitrage Yield
TIC
All-In TIC
3.98%
4.14%
4.34%
1/1/2008 -$59,327,847 -$58,939,872 -$58,439,872 7/1/2008 1,281,856 1,281,856 1,281,856 1/1/2009 1,281,856 1,281,856 1,281,856 7/1/2009 1,281,856 1,281,856 1,281,856 1/1/2010 9,986,856 9,986,856 9,986,856 7/1/2010 1,129,519 1,129,519 1,129,519 1/1/2011 10,134,519 10,134,519 10,134,519 7/1/2011 971,931 971,931 971,931 1/1/2012 10,296,931 10,296,931 10,296,931 7/1/2012 790,094 790,094 790,094 1/1/2013 10,475,094 10,475,094 10,475,094 7/1/2013 547,969 547,969 547,969 1/1/2014 10,717,969 10,717,969 10,717,969 7/1/2014 281,006 281,006 281,006 1/1/2015 10,986,006 10,986,006 10,986,006 * Also known as the Internal Rate of Return, or IRR. 34
Question and Answer
Questions and Answers Question and Answer
Peter Taylor, Managing Director
Robert Hillman, Senior Vice President
Lehman Brothers
Lehman Brothers
10250 Constellation Boulevard
399 Park Avenue
Los Angeles, CA 90067-6200
New York, NY 10022
Phone:
(310) 481-4908
Phone:
(212) 526-1190
Fax:
(212) 548-9039
Fax:
(212) 520-0586
Email:
[email protected]
Email:
[email protected] [email protected]
35
Aug 20, 2007 12:02 pm Prepared by Lehman Brothers
TABLE OF CONTENTS City of Taylorville Series 2007A Report
Page
Sources and Uses of Funds Bond Pricing
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
1
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2
Bond Debt Service
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bond Summary Statistics Reserve Fund
3
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5
Net Debt Service
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7
Aug 20, 2007 12:02 pm Prepared by Lehman Brothers
Page 1
SOURCES AND USES OF FUNDS City of Taylorville Series 2007A Sources: Bond Proceeds: Par Amount Net Premium
57,595,000.00 1,873,174.10 59,468,174.10
Uses: Project Fund Deposits: Construction Fund Other Fund Deposits: Debt Service Reserve Fund Capitalized Interest Fund
Delivery Date Expenses: Cost of Issuance Underwriter's Discount Bond Insurance (20 bps of Total Debt Service)
Other Uses of Funds: Additional Proceeds
50,000,000.00
5,946,817.41 2,489,241.99 8,436,059.40
500,000.00 387,975.00 140,326.93 1,028,301.93
3,812.77 59,468,174.10
Aug 20, 2007 12:02 pm Prepared by Lehman Brothers
Page 2
BOND PRICING City of Taylorville Series 2007A
Bond Component
Maturity Date
Amount
Rate
Yield
Price
8,705,000 9,005,000 9,325,000 9,685,000 36,720,000
3.500% 3.500% 3.900% 5.000%
3.820% 3.850% 3.900% 3.940%
99.389 99.017 100.000 104.768
10,170,000 10,705,000 20,875,000
5.250% 5.250%
4.020% 4.020%
107.440 107.440
Premium (-Discount)
Serials: 01/01/2010 01/01/2011 01/01/2012 01/01/2013
Term bond maturing in 2015: 01/01/2014 01/01/2015
57,595,000
Dated Date Delivery Date First Coupon
-53,187.55 -88,519.15 461,780.80 320,074.10
756,648.00 796,452.00 1,553,100.00 1,873,174.10
01/01/2008 01/01/2008 07/01/2008
Par Amount Premium
57,595,000.00 1,873,174.10
Production Underwriter's Discount
59,468,174.10 -387,975.00
103.252321% -0.673626%
Purchase Price Accrued Interest
59,080,199.10
102.578695%
Net Proceeds
59,080,199.10
Aug 20, 2007 12:02 pm Prepared by Lehman Brothers
Page 3
BOND DEBT SERVICE City of Taylorville Series 2007A Period Ending 01/01/2009 01/01/2010 01/01/2011 01/01/2012 01/01/2013 01/01/2014 01/01/2015
Principal
Coupon
Interest
Debt Service
8,705,000 9,005,000 9,325,000 9,685,000 10,170,000 10,705,000
3.500% 3.500% 3.900% 5.000% 5.250% 5.250%
2,563,712.50 2,563,712.50 2,259,037.50 1,943,862.50 1,580,187.50 1,095,937.50 562,012.50
2,563,712.50 11,268,712.50 11,264,037.50 11,268,862.50 11,265,187.50 11,265,937.50 11,267,012.50
12,568,462.50
70,163,462.50
57,595,000
Aug 20, 2007 12:02 pm Prepared by Lehman Brothers
Page 4
BOND SUMMARY STATISTICS STATISTICS City of Taylorville Series 2007A Dated Date Delivery Date Last Maturity
01/01/2008 01/01/2008 01/01/2015
Arbitrage Yield True Interest Cost (TIC) Net Interest Cost (NIC) All-In TIC Average Coupon
3.975882% 4.135571% 4.164996% 4.343415% 4.723122%
Average Life (years) Duration of Issue (years)
4.620 4.179
Par Amount Bond Proceeds Total Interest Net Interest Total Debt Service Maximum Annual Debt Service Average Annual Debt Service
57,595,000.00 59,468,174.10 12,568,462.50 11,083,263.40 70,163,462.50 11,268,862.50 10,023,351.79
Underwriter's Fees (per $1000) Average Takedown Other Fee
5.000000 1.736262
Total Underwriter's Discount
6.736262
Bid Price
Bond Component Serials Term bond maturing in 2015
102.578695
Par Value
Price
Average Coupon
Average Life
36,720,000.00 20,875,000.00
100.872 107.440
4.173% 5.250%
3.544 6.513
57,595,000.00
4.620
TIC
All-In TIC
Arbitrage Yield
Par Value + Accrued Interest + Premium (Discount) - Underwriter's Discount - Cost of Issuance Expense - Other Amounts
57,595,000.00
57,595,000.00
57,595,000.00
1,873,174.10 -387,975.00
1,873,174.10
-140,326.93
1,873,174.10 -387,975.00 -500,000.00 -140,326.93
Target Value
58,939,872.17
58,439,872.17
59,327,847.17
01/01/2008 4.135571%
01/01/2008 4.343415%
01/01/2008 3.975882%
Target Date Yield
-140,326.93
Aug 20, 2007 12:02 pm Prepared by Lehman Brothers
Page 5
RESERVE FUND City of Taylorville Series 2007A Debt Service Reserve Fund (DSRF)
Date 01/01/2009 01/01/2010 01/01/2011 01/01/2012 01/01/2013 01/01/2014 01/01/2015
Deposit
Interest @ 3.9758824%
5,946,817.41
5,946,817.41
Principal
236,438.46 236,438.46 236,438.46 236,438.46 236,438.46 236,438.46 236,438.46
5,946,817.41
1,655,069.22
5,946,817.41
Yield To Receipt Date: Arbitrage Yield: Value of Negative Arbitrage:
Balance 5,946,817.41 5,946,817.41 5,946,817.41 5,946,817.41 5,946,817.41 5,946,817.41
3.9758823% 3.9758824% 0.04
Aug 20, 2007 12:02 pm Prepared by Lehman Brothers
Page 6
RESERVE FUND City of Taylorville Series 2007A Capitalized Interest Fund (CAPI)
Date 01/01/2009
Deposit
Interest @ 3.9758824%
Principal
Scheduled Draws
2,489,241.99
74,470.51
2,489,241.99
2,563,712.50
2,489,241.99
74,470.51
2,489,241.99
2,563,712.50
Yield To Receipt Date: Arbitrage Yield: Value of Negative Arbitrage:
3.9758823% 3.9758824% 0.00
Balance
Aug 20, 2007 12:02 pm Prepared by Lehman Brothers
Page 7
NET DEBT SERVICE City of Taylorville Series 2007A Period Ending 01/01/2009 01/01/2010 01/01/2011 01/01/2012 01/01/2013 01/01/2014 01/01/2015
Total Debt Service
Capitalized Interest Fund
2,563,712.50 11,268,712.50 11,264,037.50 11,268,862.50 11,265,187.50 11,265,937.50 11,267,012.50
2,563,712.50
70,163,462.50
2,563,712.50
Net Debt Service
11,268,712.50 11,264,037.50 11,268,862.50 11,265,187.50 11,265,937.50 11,267,012.50 67,599,750.00
